Prescription Drug Costs...
I often hear it discussed of how ridiculously high prescription drugs cost in the US vs. the socialized health systems of other nations like Canada and the UK. Want to know why there's a disparity? Well, there are actually a few reasons. Let's explore them.
Many pharmaceutical companies exist in the highly-regulated world of the FDA. This, first, is a giant cost to business. The FDA, and usually rightly so, is draconian in its oversight of these companies and their product lines. Operating in such an environment is not cheap; something usually overlooked in the argument about drug costs.
Next, there's the small matter of R&D. Competition to develop new and better medicines is fierce. Such research is often very expensive and consumes a significant portion of every pharmaceutical company's profits. If you want the next cure for the next big disease to come down the pike, someone has to foot the bill, and in that case it is the consumers of these companies' product.
Let's not forget one of the biggest contributors to high prices on U.S. pharmaceuticals, though. This is one you'll never see the dots connected on in any major media outlet. The reason you won't see it is because it's highly damaging to their argument that pharmaceutical companies are just greedy money-grubbers who charge more here in the U.S. because Republicans want them to. Oh, and they drown puppies and cute kittens for sport. At least that's what MSNBC said. *joke* Sorry, the propoganda machine got to me for a second.
Let's look at this in the form of an economics lesson. U.S. drug manufacturers are often forced to charge outrageous rates on their products precisely because so many other nations have set price controls on what they can charge in their own countries. These are the countries often lauded by the Left as socialized medicine success stories. When all their other arguments for socialized medicine show as abysmal failures in places like Canada and Great Britain (long waits, doctor shortages, lack of basic medical diagnostic equipment), they can always fall back on the argument "Well, at least you can get drugs cheap there". Ever wonder why? Price controls is the easiest answer. Now on to the econ lesson.
Say you run a pharmaceutical company that makes a drug. It costs you $30 to make that drug. Your scientists and board of directors tell you that in order to fund other projects like researching that new cancer drug they're looking into or AIDS vaccine, expanding the company, increasing your workers'salaries, charity and welfare in the form of free product for those too poor to pay for all their drugs, and yes even giving yourself a little bonus for being such great bosses, will cost you an extra $20 per unit of drug to keep a healthy bottom line. Anything less and you have to start cutting. So, now you have to charge $50 per unit of the drug. Kind of pricy, but people can afford it and the insurance companies don't balk. Now say that Socialist Nation A & B, we'll call them Canada and Great Britain, feel you're charging too much and slap a price control on you. They tell you you can only sell your drug there for $35 equivalent. Keeping it simple and saying that they each account for a third of your sales, you're now shy $15 per unit profit on 2/3 of your sales. What to do. Well, you can do nothing and watch your bottom line shrink, your projects go unfunded, welfare get cut off to poor patients and your best and brightest leave because you can't pay them more, which likely will eventually force you to close your doors or sell to a competitor, or you can raise prices in the remaining markets. In this case, your US market would have to make up the difference. So the $15 from both thirds of your market share you aren't making have to be tacked on to your US market, making the $50 drug now $80. Bingo, outrageous drug costs are yours.
How many people know why you did this? In the world we live in, not many. Companies like Lilly and Roche, two local big pharmaceutical companies, have to deal with this as a business reality, but until I was involved with them, I never heard of this issue. Yet, it's fairly common sense when you think about it. Granted, my example above is vastly simplified, but it touches pretty closely on the realities companies who want to do this kind of business have to deal with. So much for the vaunted panacea of socialized medicine.
So the next time you're watching "The Constant Gardener" or just listening to someone like Kenneth Olbermann badmouth some drug company because Rush Limbaugh hasn't said anything juicy that week, please consider that in almost every case there's another side to that story and you'll likely never hear it from the Left.
I often hear it discussed of how ridiculously high prescription drugs cost in the US vs. the socialized health systems of other nations like Canada and the UK. Want to know why there's a disparity? Well, there are actually a few reasons. Let's explore them.
Many pharmaceutical companies exist in the highly-regulated world of the FDA. This, first, is a giant cost to business. The FDA, and usually rightly so, is draconian in its oversight of these companies and their product lines. Operating in such an environment is not cheap; something usually overlooked in the argument about drug costs.
Next, there's the small matter of R&D. Competition to develop new and better medicines is fierce. Such research is often very expensive and consumes a significant portion of every pharmaceutical company's profits. If you want the next cure for the next big disease to come down the pike, someone has to foot the bill, and in that case it is the consumers of these companies' product.
Let's not forget one of the biggest contributors to high prices on U.S. pharmaceuticals, though. This is one you'll never see the dots connected on in any major media outlet. The reason you won't see it is because it's highly damaging to their argument that pharmaceutical companies are just greedy money-grubbers who charge more here in the U.S. because Republicans want them to. Oh, and they drown puppies and cute kittens for sport. At least that's what MSNBC said. *joke* Sorry, the propoganda machine got to me for a second.
Let's look at this in the form of an economics lesson. U.S. drug manufacturers are often forced to charge outrageous rates on their products precisely because so many other nations have set price controls on what they can charge in their own countries. These are the countries often lauded by the Left as socialized medicine success stories. When all their other arguments for socialized medicine show as abysmal failures in places like Canada and Great Britain (long waits, doctor shortages, lack of basic medical diagnostic equipment), they can always fall back on the argument "Well, at least you can get drugs cheap there". Ever wonder why? Price controls is the easiest answer. Now on to the econ lesson.
Say you run a pharmaceutical company that makes a drug. It costs you $30 to make that drug. Your scientists and board of directors tell you that in order to fund other projects like researching that new cancer drug they're looking into or AIDS vaccine, expanding the company, increasing your workers'salaries, charity and welfare in the form of free product for those too poor to pay for all their drugs, and yes even giving yourself a little bonus for being such great bosses, will cost you an extra $20 per unit of drug to keep a healthy bottom line. Anything less and you have to start cutting. So, now you have to charge $50 per unit of the drug. Kind of pricy, but people can afford it and the insurance companies don't balk. Now say that Socialist Nation A & B, we'll call them Canada and Great Britain, feel you're charging too much and slap a price control on you. They tell you you can only sell your drug there for $35 equivalent. Keeping it simple and saying that they each account for a third of your sales, you're now shy $15 per unit profit on 2/3 of your sales. What to do. Well, you can do nothing and watch your bottom line shrink, your projects go unfunded, welfare get cut off to poor patients and your best and brightest leave because you can't pay them more, which likely will eventually force you to close your doors or sell to a competitor, or you can raise prices in the remaining markets. In this case, your US market would have to make up the difference. So the $15 from both thirds of your market share you aren't making have to be tacked on to your US market, making the $50 drug now $80. Bingo, outrageous drug costs are yours.
How many people know why you did this? In the world we live in, not many. Companies like Lilly and Roche, two local big pharmaceutical companies, have to deal with this as a business reality, but until I was involved with them, I never heard of this issue. Yet, it's fairly common sense when you think about it. Granted, my example above is vastly simplified, but it touches pretty closely on the realities companies who want to do this kind of business have to deal with. So much for the vaunted panacea of socialized medicine.
So the next time you're watching "The Constant Gardener" or just listening to someone like Kenneth Olbermann badmouth some drug company because Rush Limbaugh hasn't said anything juicy that week, please consider that in almost every case there's another side to that story and you'll likely never hear it from the Left.
posted by Rob Beck | 6:45 AM
3 Comments:
I realize you were going for simplicity, but Canada is a much smaller market than the U.S. Fewer people than the state of California. So while there is an effect on the price in the U.S. market, it isn't as drastic.
Europe, on the other hand (not just Great Britain), is a better example.
I understand that, and as I noted, it is a simplified example. It's not just Canada and Europe either. It's Mexico, and I'm fairly sure many Asian markets have price controls. My example choice was not meant to be exclusive, but I figured that was understood.
Nice distillation of the point.
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